1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
----- -----
COMMISSION FILE NUMBER 0-4096
COMSHARE, INCORPORATED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1804887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (734) 994-4800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of MARCH 31, 2001.
OUTSTANDING AT
CLASS OF COMMON STOCK MARCH 31, 2001
--------------------- --------------
$1.00 PAR VALUE 9,949,181 SHARES
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COMSHARE, INCORPORATED
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended March 31, 2001 and 2000 .......................................................3
Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended March 31, 2001 and 2000 .......................................................4
Condensed Consolidated Balance Sheets as of
March 31, 2001 and June 30, 2000 ..................................................................................5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2001 and 2000 .........................................................................7
Notes to Condensed Consolidated Financial Statements ..................................................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..............................................................................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .......................................................17
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .....................................................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................................................................18
SIGNATURE.................................................................................................................19
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
---- ---- ---- ----
REVENUE
Software licenses $ 5,828 $ 5,562 $ 15,839 $ 16,430
Software maintenance 5,885 5,747 17,625 17,501
Implementation, consulting
and other services 4,164 3,719 12,681 10,626
-------- -------- -------- --------
TOTAL REVENUE 15,877 15,028 46,145 44,557
COSTS AND EXPENSES
Selling and marketing 6,140 5,944 17,404 17,693
Cost of revenue and support 6,004 5,422 18,736 16,393
Internal research and product development 2,284 2,285 6,425 6,571
General and administrative 1,425 1,547 4,147 4,498
Restructuring and unusual 892 892
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 16,745 15,198 47,604 45,155
-------- -------- -------- --------
LOSS FROM OPERATIONS (868) (170) (1,459) (598)
OTHER INCOME (EXPENSE)
Interest income 304 374 1,102 1,112
Interest expense (1) (18) (5) (62)
Exchange gain (loss) - 62 (72) (32)
-------- -------- -------- --------
TOTAL OTHER INCOME 303 418 1,025 1,018
INCOME (LOSS) BEFORE TAXES (565) 248 (434) 420
Provision for income taxes (48) 87 - 148
-------- -------- -------- --------
NET INCOME (LOSS) $ (517) $ 161 $ (434) $ 272
======== ======== ======== ========
SHARES USED IN BASIC EPS COMPUTATION 9,940 9,649 9,836 9,632
======== ======== ======== ========
SHARES USED IN DILUTED EPS COMPUTATION 9,940 10,105 9,836 9,875
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE - BASIC EPS $ (0.05) $ 0.02 $ (0.04) $ 0.03
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE - DILUTED EPS $ (0.05) $ 0.02 $ (0.04) $ 0.03
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
--------- --------- ------------ ---------
Net income (loss) $ (517) $ 161 $ (434) $ 272
Other comprehensive income (loss):
Currency translation adjustment (442) (124) (595) (197)
------- ------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ (959) $ 37 $(1,029) $ 75
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
MARCH 31, June 30,
2001 2000
---- ----
ASSETS (unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $23,103 $29,506
Accounts receivable, net 18,490 17,328
Deferred income taxes 753 759
Prepaid expenses and other current assets 1,402 1,697
------- -------
TOTAL CURRENT ASSETS 43,748 49,290
Property and equipment, at cost
Computers & other equipment 8,075 8,508
Leasehold improvements 2,650 2,774
------- -------
10,725 11,282
Less - Accumulated depreciation 9,260 9,397
------- -------
Property and equipment, net 1,465 1,885
Goodwill, net 995 1,047
Deferred income taxes 7,014 6,445
Other assets 1,329 1,479
------- -------
TOTAL ASSETS $54,551 $60,146
======= =======
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
MARCH 31, June 30,
2001 2000
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) (audited)
CURRENT LIABILITIES
Accounts payable $ 2,154 $ 2,252
Accrued liabilities:
Payroll 821 2,240
Taxes 1,199 1,154
Other 5,003 6,583
-------- --------
Total accrued liabilities 7,023 9,977
Deferred revenue 10,684 12,178
-------- --------
TOTAL CURRENT LIABILITIES 19,861 24,407
Long-term debt 303 599
Other liabilities 4,086 4,249
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value;
authorized 5,000,000 shares; none issued - -
Common stock, $1.00 par value;
authorized 20,000,000 shares; outstanding
9,949,181 shares as of March 31, 2001
and 9,771,962 shares as of June 30, 2000 9,949 9,772
Capital contributed in excess of par value 39,052 38,790
Retained deficit (8,241) (7,807)
Accumulated other comprehensive income (loss): -
Pension liability, net of tax (4,282) (4,282)
Cumulative translation adjustment (6,177) (5,582)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 30,301 30,891
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 54,551 $ 60,146
======== ========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
NINE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
---- ----
OPERATING ACTIVITIES
Net income (loss) $ (434) $ 272
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 714 992
Changes in operating assets and liabilities:
Accounts receivable (1,525) 19
Prepaid expenses and other assets 415 (217)
Accounts payable (64) (3,980)
Accrued liabilities (2,802) (558)
Deferred revenue (1,289) (1,310)
Deferred income taxes (562) 1,861
Other liabilities (163) (170)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (5,710) (3,091)
INVESTING ACTIVITIES
Payments for property and equipment (152) (646)
Other (165) 70
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (317) (576)
FINANCING ACTIVITIES
Net repayments under debt agreements,
capital lease agreements and notes payable (284) (1,239)
Other 440 318
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 156 (921)
Effect of exchange rate changes (532) (83)
-------- --------
NET DECREASE IN CASH (6,403) (4,671)
CASH AT BEGINNING OF PERIOD 29,506 32,212
-------- --------
CASH AT END OF PERIOD $ 23,103 $ 27,541
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 5 $ 43
======== ========
Cash paid for income taxes $ 785 $ 336
======== ========
See accompanying notes to condensed consolidated financial statements.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION
The condensed consolidated financial statements included herein have
been prepared by Comshare, Incorporated (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's most recent Annual Report on Form 10-K.
Certain amounts in the fiscal 2000 financial statements have been reclassified
to conform with fiscal 2001 presentations.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring items, required to present fairly its consolidated statements
of operations and the consolidated statements of comprehensive income for the
three and nine months ended March 31, 2001 and 2000, the consolidated balance
sheets as of March 31, 2001 and the consolidated statements of cash flows for
the nine months ended March 31, 2001 and 2000.
The results of operations for the three and nine months ended March 31,
2001 and 2000 are not necessarily indicative of the results to be expected in
future quarters or the full fiscal year. The software industry is generally
characterized by seasonal trends.
NOTE B - COMPUTER SOFTWARE
Product upgrades for the Company's products have been released
regularly with an almost continuous product development cycle. Based on these
continuous product life cycles, the time between establishing technological
feasibility and general release to the public is very short. As a result,
software costs qualifying for capitalization are not significant. Accordingly,
the Company does not capitalize software development costs and does not
anticipate capitalization of software costs in future periods.
NOTE C - BORROWINGS
The Company has a $10 million credit agreement which expires on
September 30, 2002. Borrowings are secured by accounts receivable and the credit
agreement contains covenants regarding, among other things, earnings leverage,
net worth and payment of dividends. Under the terms of the credit agreement, the
Company is not permitted to pay cash dividends on its common stock. Borrowings
under this credit agreement were approximately $0.3 million and total available
borrowings were $10 million at March 31, 2001. Borrowings available at any time
are based on the lower of $10 million or a percentage of worldwide eligible
accounts receivable and cash. At March 31, 2001, the interest rate on borrowings
denominated in Japanese yen, which was used to hedge receivables, was 1.91%.
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE D - FINANCIAL INSTRUMENTS
The Company, at various times, enters into forward exchange contracts
to hedge certain exposures related to identifiable foreign currency transactions
that are relatively certain as to both timing and amount. Gains and losses on
the forward contracts are recognized concurrently with the gains and losses from
the underlying transactions. The forward exchange contracts used are classified
as "held for purposes other than trading." The Company does not use any other
types of derivative financial instruments to hedge such exposures, nor does it
use derivatives for speculative purposes. At March 31, 2001 and June 30, 2000,
the Company had forward foreign currency exchange contracts outstanding of
approximately $2.3 million and $5.6 million (notional amounts), respectively,
denominated in foreign currencies. The contracts outstanding at March 31, 2001
mature at various dates through September 14, 2001 and are intended to hedge
various foreign currency commitments due from the Company's distributors. Due to
the short-term nature of these financial instruments, the fair value of these
contracts is not materially different than their notional amounts at March 31,
2001 and June 30, 2000. The Financial Accounting Standards Board has issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. The Company has adopted this statement and there was no
material effect on the financial statements.
NOTE E - SEGMENT REPORTING
The Company has only one reportable segment - the development,
marketing and support of financial analytic applications software for management
planning and control. Revenue is derived from the licensing of software and the
provision of related services, that include product implementation, consulting,
training and support.
No single customer accounted for more than 10% of the Company's total
revenue in the three and nine months ended March 31, 2001 and 2000. In addition,
the Company is not dependent on any single customer or group of customers.
Geographic segment information is as follows:
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COMSHARE, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
------------ ----------- -------------- ------------
REVENUE FROM EXTERNAL CUSTOMERS:
United States $ 9,103 $ 7,756 $ 25,989 $ 22,968
United Kingdom 2,892 3,094 8,893 9,345
Other countries 3,882 4,178 11,263 12,244
-------- -------- -------- --------
TOTAL REVENUE $ 15,877 $ 15,028 $ 46,145 $ 44,557
======== ======== ======== ========
OPERATING INCOME (LOSS):
United States $ (4,275) $ (550) $ (5,833) $ (2,167)
United Kingdom 3,835 782 5,387 2,572
Other countries 2,534 2,444 7,185 7,544
-------- -------- -------- --------
TOTAL OPERATING INCOME 2,094 2,676 6,739 7,949
Unallocated expenses (2,659) (2,428) (7,173) (7,529)
-------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES $ (565) $ 248 $ (434) $ 420
======== ======== ======== ========
MARCH 31, June 30,
2001 2000
------------ -----------
IDENTIFIABLE ASSETS:
United States $ 45,217 $ 48,237
United Kingdom and other countries 9,334 11,909
-------- --------
TOTAL IDENTIFIABLE ASSETS $ 54,551 $ 60,146
======== ========
Unallocated expenses consist of general corporate expenses, internal
research and product development expenses, interest expense and interest
income.
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis sets forth information for the
three and nine months ended March 31, 2001 compared to the three and nine months
ended March 31, 2000. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto contained
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2000.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial data
as a percentage of total revenue.
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUE
Software licenses 36.7 % 37.0 % 34.3 % 36.9 %
Software maintenance 37.1 38.2 38.2 39.3
Implementation, consulting and
other services 26.2 24.8 27.5 23.8
----------- -------- --------- ----------
TOTAL REVENUE 100.0 100.0 100.0 100.0
COSTS AND EXPENSES
Selling and marketing 38.7 39.6 37.7 39.7
Cost of revenue and support 37.8 36.1 40.6 36.8
Internal research and product development 14.4 15.2 13.9 14.7
General and administrative 9.0 10.2 9.0 10.1
Restructuring and unusual 5.6 - 1.9 -
----------- -------- --------- ----------
TOTAL COSTS AND EXPENSES 105.5 101.1 103.1 101.3
LOSS FROM OPERATIONS (5.5) (1.1) (3.1) (1.3)
OTHER INCOME (EXPENSE)
Interest income 1.9 2.5 2.4 2.5
Interest expense - (0.1) - (0.1)
Exchange gain (loss) - 0.4 (0.2) (0.1)
----------- -------- --------- ----------
TOTAL OTHER INCOME 1.9 2.8 2.2 2.3
INCOME (LOSS) BEFORE TAXES (3.6) 1.7 (0.9) 1.0
Provision for income taxes (0.3) 0.6 - 0.3
----------- -------- --------- ----------
NET INCOME (LOSS) (3.3) % 1.1 % (0.9)% 0.7 %
=========== ======== ========= ==========
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REVENUE
THREE MONTHS ENDED PERCENT NINE MONTHS ENDED PERCENT
MARCH 31, CHANGE MARCH 31, CHANGE
----------------------- -------- ----------------------- --------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
MPC REVENUE
Software licenses $ 4,837 $ 3,449 40.2 % $ 11,441 $ 9,469 20.8 %
Software maintenance 2,711 1,971 37.5 7,189 5,600 28.4
Implementation, consulting and
other services 3,914 3,282 19.3 11,689 9,388 24.5
---------- ---------- ---------- ----------
TOTAL MPC REVENUE $ 11,462 $ 8,702 31.7 % $ 30,319 $ 24,457 24.0 %
========== ========== ========== ==========
LEGACY REVENUE
Software licenses $ 991 $ 2,113 (53.1) % $ 4,398 $ 6,961 (36.8)%
Software maintenance 3,174 3,776 (15.9) 10,436 11,901 (12.3)
Implementation, consulting and
other services 250 437 (42.8) 992 1,238 (19.9)
---------- ---------- ---------- ----------
TOTAL LEGACY REVENUE $ 4,415 $ 6,326 (30.2) % $ 15,826 $ 20,100 (21.3)%
========== ========== ========== ==========
TOTAL REVENUE
Software licenses $ 5,828 $ 5,562 4.8 % $ 15,839 $ 16,430 (3.6)%
Software maintenance 5,885 5,747 2.4 17,625 17,501 0.7
Implementation, consulting and
other services 4,164 3,719 12.0 12,681 10,626 19.3
---------- ---------- ---------- ----------
TOTAL REVENUE $ 15,877 $ 15,028 5.6 % $ 46,145 $ 44,557 3.6 %
========== ========== ========== ==========
The increase in total revenue of 5.6% from the quarter ended March 31,
2000 was primarily due to a 31.7% increase in revenue from the Company's
management planning and control software applications ("MPC"), offset by a 30.2%
decrease in revenue from the Company's older desktop ("legacy") products. Total
revenue growth of 3.6% from the nine months ended March 31, 2000 was primarily
due to a 24.0% increase in MPC revenue, offset by a decline of 21.3% in the
Company's legacy products. MPC revenue was $11.5 million for the quarter ended
March 31, 2001, representing 72.2% of total revenue, and $30.3 million for the
nine months ended March 31, 2001, representing 65.7% of total revenue. This
compares with MPC revenue representing 57.9% and 54.9% of total revenue for the
three and nine months ended March 31, 2000, respectively.
The 4.8% increase in software license fees from the quarter ended March
31, 2000 was primarily due to a 40.2% increase in license fees from the
Company's MPC products. The increase was offset by a decline in legacy license
fees of 53.1%. License fee revenues from the Company's MPC products accounted
for 83.0% of total license fees during the three months ended March 31, 2001 and
72.2% of total license fees for the nine month period ended March 31, 2001
versus 62.0% and 57.6% for the same periods in the prior year. License fees in
the Company's direct operations, which include North America and the United
Kingdom, grew 26.0% over the three month period and 8.3% over the nine month
period ended March 31, 2000 primarily due to the growth in MPC license fees.
Direct license fee growth was offset by a decline in distributor license fees of
24.8% compared to the 24.8% three month period ended March 31, 2000, reflecting
a decline in the Company's legacy products, which are concentrated in the
distributor operations.
Software maintenance revenues increased 2.4% and 0.7% from the three
months and nine months ended March 31, 2000, respectively. This was primarily
due to an increase of 37.5% and 28.4% in MPC product maintenance in the three
and nine months ended March 31, 2001, respectively, offset by a decline of 15.9%
and 12.3%, for such periods, respectively, in the legacy maintenance, due to
mainframe and desktop maintenance
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Software maintenance revenues increased 0.7% from the nine-month period ended
March 31, 2000 reflecting the growth in the Company's MPC products, offset by a
decline in maintenance revenues from legacy products.
Implementation, consulting and other services revenue was $4.2 million
and $12.7 million for the three and nine months ended March 31, 2001,
respectively. Implementation, consulting and other services revenue was $3.7
million and $10.6 million for the three and nine months ended March 31, 2000,
respectively. During the quarter ended March 31, 2001, 94.0% of total
implementation services revenue was related to MPC products. Implementation
services revenue related to MPC products was 92.2% of total implementation
services revenue for the nine months ended March 31, 2001. The increase in
implementation services revenue from the nine-month period ended March 31, 2000
was primarily due to the growth in MPC license fees in the Company's direct
operations.
COSTS AND EXPENSES
THREE MONTHS ENDED PERCENT NINE MONTHS ENDED PERCENT
MARCH 31, CHANGE MARCH 31, CHANGE
------------------------ --------- ---------------------- ---------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
COSTS AND EXPENSES
Selling and marketing $ 6,140 $ 5,944 3.3 % $ 17,404 $ 17,693 (1.6)%
Cost of revenue and support 6,004 5,422 10.7 18,736 16,393 14.3
Internal research and product development 2,284 2,285 - 6,425 6,571 (2.2)
General and administrative 1,425 1,547 (7.9) 4,147 4,498 (7.8)
Restructuring and unusual 892 100.0 892 100.0
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES $ 16,745 $ 15,198 10.2 % $ 47,604 $ 45,155 5.4 %
========== ========== ========== ==========
Total costs and expenses increased 10.2% and 5.4% for the three
and nine months ended March 31, 2001, respectively, compared to the prior year.
The increase in the three month period was primarily due to a restructuring
charge taken in the third quarter, and to a lesser degree additional third party
consulting costs associated with increased implementation services revenue. The
increase in the nine month period was primarily due to the third party
consulting costs, and to a lesser degree the third quarter restructuring charge.
Selling and marketing expenses increased 3.3% and decreased 1.6% in the
three and nine months ended March 31, 2001, respectively compared to the prior
year. The increase in the three months ended March 31, 2001 from the same
quarter a year ago is primarily due to increased spending in promotional and
other purchased services. The decrease in the nine months ended March 31, 2001
is primarily due to decreased employee expenses offset by increased
promotional and other purchased services.
Cost of revenue and support expenses increased 10.7% and 14.3% for the
three and nine months ended March 31, 2001, respectively. The increase was
primarily due to increased costs associated with third party consultants
involved in implementations.
Internal research and product development costs remained relatively flat
with the same periods of the prior year.
General and administrative costs have decreased 7.9% and 7.8% from the
three and nine-month periods ended March 31, 2000, respectively, primarily due
to reduced third party computing costs and administrative expenses.
The Company recorded a $0.9 million restructuring charge in the third
quarter ending March 31, 2001. This charge reflects certain cost reductions
actions by the Company, taken to reduce personnel costs and other expenses. The
restructuring charge included total staff reductions of 13 employees. Because of
planned investments in MPC products, the Company does not expect these cost
reduction actions to reduce the Company's total expenses.
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OTHER INCOME AND EXPENSE
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
OTHER INCOME (EXPENSE)
Interest income $ 304 $ 374 $ 1,102 $ 1,112
Interest expense (1) (18) (5) (62)
Exchange gain (loss) - 62 (72) (32)
------- ------- ------- -------
TOTAL OTHER INCOME $ 303 $ 418 $ 1,025 $ 1,018
======= ======= ======= =======
Lower interest rates on short-term investments during the three and
nine months ended March 31, 2001 resulted in decreased interest income compared
to the three and nine months ended March 31, 2000. The marginal increase in
other income from the nine-month period ended March 31, 2000 was due to reduced
interest costs offset by higher losses on foreign exchange.
FOREIGN CURRENCY
For the three and nine months ended March 31, 2001, 42.7% and 43.7%,
respectively, of the Company's total revenue was from outside North America
compared with 48.4% and 48.5% for the three and nine months ended March 31,
2000, respectively. Most of the Company's international revenue is denominated
in foreign currencies. The Company recognizes currency transaction gains and
losses in the period of occurrence. As currency rates are constantly changing,
these gains and losses can, at times, fluctuate greatly. The Company's future
operating results may be adversely impacted by the overall strengthening of the
U.S. dollar against foreign currencies of countries where the Company conducts
business; conversely, future operating results may be favorably impacted by an
overall weakening of the U.S. dollar against foreign currencies. For the three
and nine months ended March 31, 2001, foreign currency fluctuations did not have
a material impact on the Company's revenues, operating expenses or net income.
The Company had several forward exchange contracts totaling a notional
amount of $2.3 million, outstanding at March 31, 2001. See Note D of Notes to
Condensed Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate in each of the three and nine
months ended March 31, 2001 and 2000 was approximately 35%. No tax benefit was
recognized associated with the losses incurred in the three and nine month
period ended March 31, 2001.
Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net of operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Although realization of the deferred tax assets is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized through future taxable income or by using a tax
strategy currently available to the Company. On a quarterly basis, management
will assess whether it remains more likely than not that the deferred tax assets
will be realized. This assessment could be impacted by a combination of
continuing operating losses and a determination that the tax strategy is no
longer sufficient to realize some or all of the deferred tax assets. The
foregoing statements regarding the realization of deferred tax assets are
"forward looking statements" within the meaning of the Securities Exchange Act
of 1934. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Safe Harbor Statement" for discussion of
uncertainties relating to such statements.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001 cash and cash equivalents were $23.1 million,
compared with cash and cash equivalents of $29.5 million at June 30, 2000. The
decrease in cash and cash equivalents is principally due to increased days sales
outstanding in accounts receivable and payment of fiscal 1999 and earlier years'
restructuring costs and related items.
Net cash used in operating activities was $5.7 million in the nine
months ended March 31, 2001, compared with $3.1 million in the nine months ended
March 31, 2000, primarily due to increased accounts receivable and the payment
of restructuring costs, as described above. The prior year cash benefited from a
tax refund of $1.9 million. In addition, the increase in cash was due to reduced
accounts payable accruals associated with payroll.
Net cash used in investing activities was $0.3 million in the nine
months ended March 31, 2001 and $0.6 in the nine months ended March 31, 2000.
The Company purchases most of its computer equipment under operating leases. At
March 31, 2001, the Company did not have any material capital expenditure
commitments.
Net cash provided by financing activities was $0.2 million in the nine
months ended March 31, 2001, compared with net cash used in financing activities
of $0.9 million in the same period one year ago. The net increase in cash
provided by financing activities was due to reduced payments on debt from the
prior year.
Total assets were $54.5 million at March 31, 2001, compared with total
assets of $60.1 million at June 30, 2000. The decrease in total assets is
primarily due to the decrease in cash and cash equivalents. Working capital as
of March 31, 2001 was $23.9 million, compared with $24.9 million as of June 30,
2000.
The Company has a $10 million credit agreement which expires on
September 30, 2002. Borrowings are secured by accounts receivable and the credit
agreement contains covenants regarding, among other things, earnings leverage,
net worth and payment of dividends. Under the terms of the credit agreement, the
Company is not permitted to pay cash dividends on its common stock. Borrowings
under this credit agreement were approximately $0.3 million and total available
borrowings were $10 million at March 31, 2001. Borrowings available at any time
are based on the lower of $10 million or a percentage of worldwide eligible
accounts receivable and cash. At March 31, 2001, the interest rate on borrowings
denominated in Japanese yen, which were used to hedge receivables in those
currencies, was 1.91%.
The Company believes that the combination of present cash balances and
amounts available under credit facilities will be sufficient to meet the
Company's currently anticipated cash requirements for at least the next twelve
months. The foregoing statement is a "forward looking statement" within the
meaning of the Securities and Exchange Act of 1934, as amended. The extent to
which such sources will be sufficient to meet the Company's anticipated cash
requirements is subject to a number of uncertainties, including the ability of
the Company's operations to generate sufficient cash to support operations, and
other uncertainties described in "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Safe Harbor Statement."
MARKET SENSITIVITY ANALYSIS
The Company is exposed to market risk from changes in foreign exchange
and interest rates. To reduce the risk from changes in foreign exchange rates,
the Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.
The Company, at various times, denominates borrowings in foreign
currencies and enters into forward exchange contracts to hedge exposures related
to foreign currency transactions. The Company does not use any other types of
derivatives to hedge such exposures nor does it speculate in foreign currency.
In general, the Company uses forward exchange contracts to hedge against large
selective transactions that present the most exposure to exchange rate
fluctuations. At March 31, 2001 and June 30, 2000, the Company had forward
contracts of approximately $2.3 million and $5.6 million (notional amounts),
respectively, denominated in foreign currencies. The contracts outstanding at
March 31, 2001 mature through September 14, 2001 and are intended to hedge
various foreign currency commitments due from the Company's distributors. Due to
the short-term nature of these financial
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instruments, the fair value of these contracts is not materially different than
their notional amounts at March 31, 2001 and June 30, 2000.
Gains and losses on the forward contracts are largely offset by gains
and losses on the underlying exposure. The Company conducts business in
approximately 6 foreign currencies, predominately British pounds, the Euro and
Japanese yen. A hypothetical 10 percent appreciation of the U.S. dollar from
March 31, 2001 market rates would increase the unrealized value of the Company's
forward contracts and a hypothetical 10 percent depreciation of the U.S. dollar
from March 31, 2001 market rates would decrease the unrealized value of the
Company's forward contracts. In either scenario, the gains or losses on the
forward contracts would be largely offset by the gains or losses on the
underlying transactions, and so would have an immaterial impact on the Company's
results of operations.
The Company maintains its cash and cash equivalents in highly liquid
investments with maturities of ninety days or less. The Company has the ability
to hold its fixed income investments until maturity, and therefore the Company
would not expect its operating results or cash flows to be affected to any
significant degree by the effect of a hypothetical 10 percent change in market
interest rates on its cash and cash equivalents.
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SAFE HARBOR STATEMENT
Certain information in this Form 10-Q Report contains "forward looking
statements" within the meaning of the Securities Exchange Act of 1934, as
amended, including those concerning the Company's future results, new market and
business opportunities, strategy and product releases. Actual results could
differ materially from those in the forward looking statements due to a number
of uncertainties, including, but not limited to, the demand for the Company's
products and services; the size, timing and recognition of revenue from
significant orders; increased competition and pricing pressures from
competitors; the Company's success in and expense associated with developing,
introducing and shipping new products; new product introductions and
announcements by the Company's competitors; the level of interest and success of
the Company's distributors in marketing and selling the Company's products;
changes in Company strategy; product life cycles; the cost and continued
availability of third party software and technology incorporated into the
Company's products, including the impact of expiration of the license for
Essbase in December 2002; the impact of rapid technological advances, evolving
industry standards and changes in customer requirements, including the impact on
the Company's revenues of Microsoft's OLAP database; the overall competition for
key employees; cancellations of maintenance and support agreements; software
defects; changes in operating expenses; fluctuations in foreign exchange rates;
the ability of the Company to generate sufficient future taxable income or to
execute available tax strategies required to realize deferred tax assets; and
economic conditions generally or in specific industry segments. In addition, a
significant portion of the Company's revenue in any quarter is typically derived
from non-recurring license fees, a substantial portion of which is booked in the
last month of a quarter. Since the purchase of the Company's products is
relatively discretionary and generally involves a significant commitment of
capital, in the event of any downturn in any potential customer's business or
the economy in general, purchases of the Company's products may be deferred or
cancelled. Further, the Company's expense levels are based, in part, on its
expectations as to future revenue and a significant portion of the Company's
expenses do not vary with revenue. As a result, if revenue is below
expectations, results of operations are likely to be materially, adversely
affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
As previously reported, on February 16, 2001, the Board of
Directors of the Company amended the Company's bylaws including the provisions
of Section 4.03.5 relating to business to be conducted at meetings of
shareholders and shareholder nominations and proposals. See "Item 6 - Exhibits
and Reports on Form 8-K." Under the bylaws as amended, shareholder proposals
intended to be presented at the 2001 Annual Meeting which are not eligible for
inclusion in the Company's Proxy Statement under Rule 14a-8 promulgated under
the Securities Exchange Act of 1934 (the "Exchange Act"), and shareholder
nominations of individuals for election to the Board of Directors at the 2001
Annual Meeting, must be received by the Company not later than August 22, 2001.
This date may be earlier than the deadline date described in the Company's 2000
Proxy Statement. There is no change in the date that shareholder proposals
intended to be presented at the 2001 Annual Meeting which are eligible for
inclusion in the Company's Proxy Statement for that meeting under Rule 14a-8
promulgated under the Exchange Act must be received by the Company if they are
to be included in the Company's Proxy Statement relating to that meeting. This
date is not later than June 20, 2001. All such proposals or nominations should
be addressed to the Secretary at the Company's principal executive offices and
should satisfy the requirements applicable to shareholder proposals or
nominations contained in the Company's bylaws.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None.
(b) Reports on Form 8-K.
On March 9, 2001, the Company filed a Form 8-K, reporting the amendment
and restatement of its bylaws under Item 5, as described in Item 2
above. A copy of the restated bylaws was filed as an exhibit.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: MAY 14, 2001 COMSHARE, INCORPORATED
(Registrant)
/s/ Brian Jarzynski
--------------------
Brian Jarzynski
Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
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INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
3.02 Restated Bylaws of the Registrant -
incorporated by reference to Exhibit 3.02 to
the Registrant's Form 8-K Report filed March
9, 2001.
10.01 Comshare, Incorporated Change in Control
Severance Agreement, dated as of February 9,
2001, between Comshare, Incorporated and
Brian Hartlen.
10.02 Comshare, Incorporated Change in Control
Severance Agreement, dated as of February
16, 2001, between Comshare, Incorporated and
Brian Jarzynski.
10.03 Letter of Understanding, dated February 8,
2001, between Comshare, Incorporated and
Norman Neuman Jr. and Norman Neuman Jr.
Notices of Grant of Stock Options and Option
Agreements.
10.04 Kathryn A. Jehle Notices of Grant of Stock
Options and Option Agreements.
10.05 Second Amendment to the Benefit Adjustment
Plan of Comshare, Incorporated.
10.06 Third Amendment to 1988 Stock Option Plan.
10.07 Second Amendment to Directors' Stock Option
Plan.
10.08 Second Amendment to Global Employee Stock
Option Plan.
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